Neuss v. United States Life Ins. Co., 30 N.Y.2d 244 (1972)
In credit insurance obtained as an option by the debtor, the insurer must furnish the debtor with a copy of the insurance application for it to be used as a defense against a claim.
Summary
The widow of a deceased purchaser of mutual fund shares sued the insurers to recover under a diminishing term life insurance policy. The deceased had falsely denied any heart disease in his insurance application. The insurer claimed the application was returned to Crosby Plans Corporation, the group policyholder, as permitted by statute. The Court of Appeals held that the insurer could not use the fraudulent application as a defense unless a copy was furnished to the deceased during the contestability period. The Court reversed the grant of summary judgment for the insurers, finding questions of fact whether the deceased received a copy or if he was estopped from recovery due to being a sales representative.
Facts
The deceased, an attorney and sales representative for a registered dealer of Crosby Plans Corporation, purchased mutual fund shares on an installment plan. He opted for diminishing term life insurance to cover his remaining payments. In his application, he falsely denied any heart disease, despite a history of heart attacks and hospitalizations. He also understated his age. He died four months later, owing $16,700 on the shares.
Procedural History
The plaintiff, the deceased’s widow, sued the insurers. The Supreme Court denied the plaintiff’s motion for summary judgment and granted summary judgment for the defendant insurers. The Appellate Division affirmed. The Court of Appeals granted leave to appeal.
Issue(s)
Whether, in the context of credit insurance obtained as an option by the debtor, the insurer must furnish the debtor (or his estate) with a copy of the insurance application containing misrepresentations for it to be used as a defense against a claim?
Holding
Yes, because in credit insurance where the debtor elects and pays for the insurance, the statute and policy language require that the insured (debtor) or beneficiary receive the insurance application in order for the insurer to use misstatements in the application as a defense.
Court’s Reasoning
The Court reasoned that Insurance Law § 142 requires copies of life insurance applications be attached to the policy to allow the insurer to use misstatements as a defense. For group life policies, § 161 requires insureds or beneficiaries receive copies of individual applications. The approved policy form here stated, “a copy of the instrument containing the statement is or has been furnished to the Debtor or to his estate.” The purpose of furnishing copies of statements is to allow insureds to correct errors or expose contract invalidity. The reference to “estate” only means if death occurs before delivery in the regular course of events. The court noted that unlike typical creditor insurance, this insurance was optional and paid for by the debtor, with the wife as ultimate beneficiary. Crosby’s interest was primarily in the commissions. Therefore, the wife was the true beneficiary. The Court found that the insurers may not assert the fraudulent insurance application unless furnished to the deceased during the contestability period. However, summary judgment was improper because factual issues remained as to whether deceased received a copy as a sales representative, and whether he had a duty to disclose fully all facts relevant to the transaction. The Court referenced the principle that fraud extrinsic to the insurance application, excluded for failure to attach it to the policy, may still ground a defense.